Green Mountain Coffee Roasters Inc. (GMCR) is set to report fourth-quarter 2013 results on Nov 20. Last quarter, it posted a 5.1% positive surprise. Let us see how things are shaping up for this announcement.
Factors to Consider this quarter
We believe that the intensifying competitive scenario could bar the company from continuing its earnings streak in the fourth quarter.
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As per market research firm, Neilsen and OTR Global, Green Mountain’s K-cup sales growth, which forms a major part of GMCR’s revenues, is losing shares to companies like Treehouse Foods Inc. (THS). Green Mountain is expected to lose market share as its signature K-cups and Keurig brewers are facing intense competition from private labels.
Moreover, several other coffee makers like Peet’s and Nescafe have entered the single-serve coffee world and Green Mountain is expected to face competition from their brewers as well. Many retailers like Walmart Stores Inc. (WMT) and Best Buy Inc. (BBY) are slashing prices of the Vue brewers following lower sales for several months
.However, GMCR is trying hard to upgrade its Keurig brewer and make it more user-friendly and compatible for both K-cups and Vue packs. The company is planning to expand into untapped international markets in the upcoming year. Moreover, the company is opening its Keurig stores. These endeavors may offset the difficult competitive environment in the single serve market and help GMCR stay afloat in the coming quarter.
Our proven model does not conclusively show that Green Mountain is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank of #1, 2 or 3 for this to happen. That is not the case here as you will see below.
Negative Zacks ESP: That is because the Most Accurate estimate stands at 70 cents while the Zacks Consensus Estimate is higher at 75 cents. Hence the difference is -6.67%.
Zacks Rank: GMCR’s Zacks #3 Rank (Hold) lowers the predictive power of ESP because the Zacks #3 Rank when combined with a negative ESP makes surprise prediction difficult. We caution against stocks with Zacks Ranks #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.
Other Stocks to Consider
Here are some other companies you may want to consider as our model shows that they have the right combination of elements to post an earnings beat this quarter:
Best Buy Co., Inc. (BBY) with Earnings ESP of +9.09% and a Zacks Rank #1 (Strong Buy)
Tivo Inc. (TIVO) with Earnings ESP of +16.67% and a Zacks Rank #2 (Buy)
Trina Solar Limited (TSL) with Earnings ESP of +77.78% and a Zacks Rank #2 (Buy)